Tuesday 21 April 2009 19.01 EDT
First published on Tuesday 21 April 2009 19.01 EDT

Alistair Darling will today promise to create work for up to 250,000 of Britain's young unemployed in a "budget for jobs" that will coincide with a fresh surge in joblessness to its highest level since Labour came to power in 1997.

In an attempt to contrast government action with the Conservative response to the mass unemployment of the 1980s, the chancellor will pledge not to return to the days when a generation was "abandoned to a future on the scrapheap".

Darling will tell MPs that lower interest rates and higher state borrowing have protected 500,000 jobs during a downturn that has seen the economy tumble into deep recession since last autumn, and that the budget will provide a guarantee of a job or training for all 16- to-24-year-olds unemployed for more than a year. Unemployment figures a month ago showed a record 138,000 increase in the number of people out of work and claiming benefit, and Labour MPs are expecting another big jump today.

Final preparations for the jobs measures were overshadowed by a gloomy report from the International Monetary Fund warning that the writedown on toxic assets held by British banks could be as high as £200bn - more than three times previous government estimates. However, the Treasury last night disputed the figure, saying the IMF had offered a range of costs from 6% to 13% of UK GDP, with £200bn at the highest end of the scale.

The Treasury has been under pressure from trade unions, thinktanks and business lobbies to tackle rising unemployment - up almost 600,000 on the claimant count measure in the past year - and the chancellor will say that jobs for young people will start to be available from September.

The full guarantee of work or training will be in operation by the new year and although the government envisages that large numbers of the new posts will be in the low wage sectors of social care or hospitality, Darling believes that immediate action has to be taken to prevent worklessness from taking root.

The chancellor is expected to spend around £2bn on job creation measures. But with the budget deficit set to rise to £170bn this year he has rejected calls for employment subsidies to keep people in work. Instead, Whitehall sources said that the package would involve increased spending by councils, benefit top-ups for young people going into training rather than work and pre-employment training backed by recruitment subsidies for those lacking the skills to hold down a job.

Although the budget is likely to be dominated by the downward revision of the Treasury's growth forecast to show the biggest drop in GDP for a single year since 1945, Darling believes he has room to provide a modest stimulus to growth and put political distance between Labour and the Conservatives.

Sources said the speech would concentrate on developing the skills, infrastructure, technology and strong businesses needed for economic recovery, but that it would also contain two measures specifically designed to help those on low incomes. Grandparents and other adult carers looking after children under 12 for a relative will have their national insurance contributions paid by the government so that they qualify for a full state pension. Sources said this would help 40,000 grandparents and 45,000 people in total.

In recognition of the growing hardship caused by rising unemployment, Darling will announce a £270m top-up to the Social Fund, which provides interest- free loans for those on jobless benefits for one-off spending on items such as cookers or a suit for a job interview. In the last two years, spending on the Social Fund has been running at around £700m a year.